Negative gearing explained

Negative gearing is a popular investment strategy in Australia, but it’s also a term that often comes up in the media, particularly when there’s an election looming, like right now.

Let’s take a look at what it means, what capital gains tax (CGT) is and why you need to know about these terms if you plan to invest in property.

What is negative gearing?

Negative gearing is where the expenses associated with owning an asset such as an investment property (including interest expenses) are greater than the income earned from the asset.

So, say the rental return on your investment property is $2,800 a month, but your investment property costs (e.g. your home loan interest, property management fees, insurance, maintenance costs, etc.) set you back $3,200 a month. That means you’re negatively geared.

Investors who are negatively geared can deduct the losses they incur against other income, including salary and wages.

Positive gearing is the opposite – the rental returns exceed the costs of owning the property. Neutral gearing is when an investment property’s income and expenses are pretty much equal.


Why is negative gearing attractive to investors?

In Australia, it’s estimated two in three rentals (just over one million) lose money. So, why would anyone want an asset that’s making them a loss?

Some investors are willing to negatively gear their properties in the hope that the capital gain (the sale price minus the cost of the asset) when they sell the property will more than offset those losses.

The ability to deduct losses and reduce one’s taxable income, thereby lowering the amount of income tax you pay, is another real drawcard for many investors, particularly those in higher tax brackets.


What is capital gains tax (CGT)?

CGT is the tax you pay on profits when you sell the property. Although it’s referred to as ‘capital gains tax’, it’s part of your income tax. It’s not a separate tax.

If you’ve owned the property for more than 12 months, you can reduce your capital gain by 50 per cent. This is referred to as the capital gains tax discount.


Why has negative gearing been in the news?

There have been calls to overhaul negative gearing and the CGT discount for years, as opponents believe they exacerbate the housing crisis and favour higher income earners.

The Henry Tax Review conducted by Treasury in 2010, for example, recommended a 40 per cent capital gains discount, which was not adopted.

More recently, the Australian Council of Social Service (ACOSS) called for reforms to negative gearing and capital gains tax discounts.

The ACOSS report, Homes for living, not wealth creation, found the wealthiest 10 per cent of households hold two thirds of the value of investment property.

ACOSS called on the next government to halve the CGT discount to 25 per cent over five years, reducing it by five per cent per year; restrict negative gearing for new investments so that investment losses can only be offset against investment income rather than wages; and phase out negative gearing for existing investments over five years.


So, what are the major parties saying in the lead up to the May election?

Greens leader Adam Bandt has flagged he will push for negative gearing changes if his party holds the balance of power after the upcoming election.

Labor went to the 2016 and 2018 elections with a proposal to overhaul negative gearing. However, it’s not on the government’s reform agenda at present.

“We have no plans to do anything on negative gearing, because we don’t think that is the main issue. The issue is supply, and that’s what we’re tackling,” Anthony Albanese recently said.

Opposition leader Peter Dutton has “guaranteed” the Coalition would leave negative gearing and the capital gains tax concession unchanged should it win the upcoming election.


Ready to buy an investment property?

Before making any property investment decisions, it’s always wise to speak to your tax advisor or a financial planner.



If you do decide to buy, we can assist with the finance side of things. Get in touch today and we’ll run through your investment loan options.

Are investors changing course after the new negative gearing reforms?

August 20, 2026
The Federal Government’s negative gearing and Capital Gains Tax (CGT) reforms represents a significant shift in how future property investments will be treated for tax purposes. For investors considering their next purchase, the changes may influence everything from the type of property they buy to how they assess cash flow and long-term returns. Legislated, many investors are reassessing their property purchasing plans and strategies. The core reforms have now passed Parliament, although some of the more detailed implementation rules are still being finalised ahead of their commencement. If you’re looking to buy an investment property down the track, here’s what you need to know about the reforms and how they change the playing field. What is changing? On 12 May, Treasurer Jim Chalmers handed down the Federal Budget , which included major changes to negative gearing and CGT rules. From 1 July 2027: Negative gearing for residential property investments will be limited to new builds. The 50 per cent CGT discount will be replaced with cost base indexation and a 30 per cent minimum tax rate on capital gains. Properties held before the announcement (7:30pm AEST 12 May 2026) will be exempt from the negative gearing changes, while the CGT reforms will only apply to gains accruing after 1 July 2027. How have the reforms affected the market and investors? When the changes were announced, Australia’s property market had already been cooling, driven by a combination of cash rate hikes, housing affordability constraints, the Middle East conflict, and cost-of-living pressures. But the Federal Budget reforms dampened the market even further, with auction clearance rates slipping to levels worse than during the pandemic, and investor confidence dropping. One survey of more than 1,400 Australian investors found that more than 80% believed residential investment property had become less attractive following the 2026 Federal Budget changes. At the same time, 51.5% said they planned to hold their existing investments and wait to see how the proposed legislation evolves. Overall, the survey offers a useful snapshot of investor sentiment, although it should not be taken as representative of every Australian property investor. Key shifts in strategy Since the announcement, there have been early signs that some investors are reconsidering where and how they invest, although it is too soon to say how the reforms will reshape the broader property market over the long term. New builds could attract more attention With negative gearing limited to new builds from 1 July 2027, there are signs that some investors are pivoting towards newly constructed properties. Data from property fund manager Oliver Hume shows the proportion of new-build sales to investors in Victoria has risen above 40 per cent for the first time since December 2024, for example. Experts say investors will likely switch to new units or houses on the outer city fringes, while suburbs in the middle of cities could experience a decrease in stock, potentially resulting in higher rents . Holding or grandfathering existing assets Investors with established properties purchased before 12 May 2026 may choose to retain those properties, as they are exempt from the negative gearing reforms and can continue to access the existing tax treatment that applies to grandfathered properties. These investors can keep negative gearing the property against their wage income and retain the full benefits until they sell. Cash flow could become an even bigger consideration Historically, negative gearing enabled investors to offset losses on established investment properties against their taxable income. But under the changes , investors purchasing established properties would no longer receive immediate tax relief on those losses. The changes may prompt some investors to focus more heavily on rental yield , cash flow and long-term returns when assessing investment opportunities. As a result, positively geared properties could become more attractive relative to investments that rely heavily on tax concessions to support returns. Some may also look for properties with the potential to transition to positive gearing over time as rental income grows. What about the changes to SMSF borrowing? In addition to the CGT and negative gearing reforms, there are new rules around self-managed super fund (SMSF) borrowing. From 10 August 2026, SMSFs can no longer use Limited Recourse Borrowing Arrangements (LRBAs) to buy residential property. Current LRBAs are grandfathered. SMSFs can still purchase residential property outright using cash , and LRBAs can be used to acquire business real property. The changes have been met with mixed reviews among investors, and some critics questioning whether it would make it harder for Australians to build retirement wealth . Some experts also believe that the changes could increase the appeal of commercial property among SMSF investors, although SMSF property investment can involve complex lending, tax and superannuation requirements, so specialist financial, legal and tax advice is particularly important. Considering an investment property purchase? The changes in the budget mean investors may need to think differently about the type of property they purchase, its cash flow and how the investment fits within their broader financial plans. While we can’t provide tax or financial advice, we can help you understand the lending side of the equation. We can review your borrowing capacity, compare suitable loan options and help you understand how different property and loan scenarios could affect your repayments and overall finance structure. If you’re considering your next investment property, get in touch! We can help you explore your finance options so you can make your next move with a clearer understanding.

What’s driving the drop in auction clearance rates?

July 20, 2026
After years of fierce competition, fast-rising prices and crowded auction weekends, the market is beginning to show signs of a shift. More properties are being listed for sale, homes are taking longer to sell, and buyers are becoming increasingly selective about what they’re willing to pay.